U. S. versus eu competition Policy: The Boeing-McDonnell Douglas Merger




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Questions for Discussion

1. What are the motives for Boeing in pursuing the merger with McDonnell-Douglas? What are McDonnell-Douglas’s motives? How is the merger a better outcome than each firm’s best alternative fallback strategy? In light of these benefits, would the companies be wise to foreswear the long-term supply contracts opposed by the Commission?


2. Consider policymaking in the United States on the merger. Does the FTC decision represent the fair application of anti-trust rules? Does it appear to have been influenced by pressure to support a national champion? To what extent are the long-term supplier contracts germane?
3. What are the interests of other groups and firms (suppliers, consumers, airlines, Department of Defense, etc.) with respect to the proposed merger? Does the position taken by the House of Representatives represent these interests in a balanced way, or is it the product of lobbying by the two American firms in particular?
4. In what ways, and to what extent, would the merger affect the competitive position of Airbus? With what aspects of the merger should Airbus be particularly concerned? If it cannot block the merger, what conditions should it ask the Commission to apply?
5. Consider policymaking in the European Union. Does the Commission’s position represent a faithful application of EU competition law? To what extent might it have been influenced by a national champion strategy? What actors within the European Union, aside from Airbus itself, would most favor such a strategy?

6. What is the pure economic case for and against the merger? What are the merits of subsidizing aircraft production? What are the implications of the observation that the global market in double-aisled passenger aircraft is a natural monopoly? Is the Commission’s argument about cross-subsidization between military and civilian production supported by the historical success of firms? Are subsidies a concern of competition policy or industrial policy?


7. In what ways are U.S. and EU competition policies compatible and incompatible? Why, despite the existence of a U.S.-EU agreement on competition policy, did U.S. and EU officials disagree fundamentally on the Boeing-McDonnell Douglas merger? How strong is the case for coordinating competition enforcement and merger review? What institutional mechanisms are needed to improve cooperation? Is a common transatlantic or global competition policy desirable?

References

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1 Monti (2001).

2 Russia has for years produced its own commercial airplane, the Ilyushin, but it is widely seen as technologically inferior and unreliable, and thus cannot be considered a viable competitor. See Official Journal of the European Communities (1997), point 16.

3 Wallace (2002).

4 Boeing Company (2002).

5 Tyson (1992), p. 162.

6 Tyson (1992), p. 165.

7 Klepper (1994), p. 103-104.

8 Busch (1999), p. 35.

9 Tyson (1992), p. 165.

10 Official Journal of the European Communities (1997), point 15.

11 Official Journal of the European Communities (1997), point 16.

12 Tyson (1992), p. 166.

13 Thompson (1998).

14 Lynn (1995), p. 7.

15 Thornton (1995), p. 72-73.

16 Thornton (1995), p. 81. The GIE structure of Airbus was transformed into a full-fledged company after the 2000 merger of Aerospatiale Matra, DaimlerChrysler Aerospace AG, and CASA into the European Aeronautics Defense and Space (EADS) Co., which owns 80 percent of Airbus, with BAE Systems owning the remaining 20 percent. Airbus now owns all the production facilities located the United Kingdom, France, Germany and Spain.

17 Thornton (1995), p. 187.

18 Lynn (1998), p. 120.

19 Lynn (1998), p. 163.

20 Tyson (1992), p. 158-159.

21 Lynn (1998), p. 155.

22 Lynn, p. 158.

23 Vayle and Yoffie (1993).

24 Tyson (1992), p. 158-159.

25 Vayle and Yoffie (1993).

26 Vayle and Yoffie (1993); Aerospace Industries Association (2001).

27 Ford and Nicoll (1998).

28 Skapinker and Gray (1996).

29 Aerospace Industries Association (2001).

30 Tyson (1992), p. 179.

31 Tyson (1992), p. 198.

32 Tyson (1992), p. 195.

33 Tyson (1992), p. 200.

34 Official Journal of the European Communities (1980).

35 See Vayle and Yoffie (1993).

36 McGuire (1997), p. 61.

37 Tyson (1992), p. 206-207.

38 Official Journal of the European Communities (1992). Specifically, 25 percent of the costs must be repaid at interest rates “no less than the cost of borrowing to the government,” while the remaining 8 percent must be repaid at interest rates 1 percent higher than government rates.

39 Boeing Company (1997).

40 Tyson (1992), p. 210. However, because the agreement is between only the United States and the European Union, it would not prevent a new competitor from China, Russia or Japan, for example, from entering the market with massive government subsidies.

41 McGuire (1997), p. 136.

42 Gray (1996).

43 Parkes (1996b).

44 Waters (1996).

45 Parkes (1996a).

46 Skapinker (1996).

47 Tucker (1996).

48 Skapinker and Gray (1996).

49 Baker (1996).

50 Tucker (1996).

51 Skapinker (1997).

52 Fox (1997), p. 339.

53 Fox and Pitofsky (1997), p. 235.

54 Fox and Pitofsky (1997), p. 236.

55 Scherer (1994), p. 63.

56 Fox and Pitofsky (1997), p. 237.

57 Scherer (1994), p. 63.

58 Fox (1997), p. 343.

59 Fox and Pitofsky (1997), p. 241.

60 Fox and Pitofsky (1997), p. 241-242.

61 Fox and Pitofsky (1997), p. 242.

62 Fox and Pitofsky (1997), p. 247.

63 Fox (1997), p. 348.

64 Baker (1996) and Fox and Pitofsky (1997), p. 250.

65 Fox (1997), p. 349.

66 Baker (1996).

67 Nicolaïdis and Vernon (1997), p. 275.

68 On May 1, 1999, the Treaty of Amsterdam renumbered the articles of the Treaty of Rome and named the new document the Treaty Establishing the European Community – the new numbers are used here.

69 Cini and McGowan (1998), p. 17.

70 Nicolaïdis and Vernon (1997), p. 290.

71 Cini and McGowan (1998), p. 19.

72 Nicolaïdis and Vernon (1997), p. 277.

73 Dinan (1999), p. 214 and 218.

74 Nicolaïdis and Vernon (1997), p. 285-286.

75 Cini and McGowan (1998), p. 98.

76 Nicolaïdis and Vernon (1997), p. 293.

77 Nicolaïdis and Vernon (1997), p. 291.

78 Nicolaïdis and Vernon (1997), p. 291-292.

79 Nicolaïdis and Vernon (1997), p. 292.

80 Nicolaïdis and Vernon (1997), p. 295.

81 Cini and McGowan (1998), p. 120.

82 Karpel (1998), p. 1037.

83 Bermann et al. (2002), p. 944-945.

84 Cini and McGowan (1998), p. 121.

85 Cini and McGowan, p. 123.

86 Fox (1997), p. 342.

87 Fox and Pitofsky (1997), p. 263.

88 Nicolaïdis and Vernon (1997), p. 287.

89 Fox and Pitofsky (1997), p. 268.

90 Office of Technology Assessment (1994), p. 201-202.

91 Tucker (1996) and ICPAC (2000).

92 Federal Trade Commission (1997a).

93 Federal Trade Commission (1997a).

94 Federal Trade Commission (1997a).

95 Federal Trade Commission (1997b).

96 Federal Trade Commission (1997b).

97 Official Journal of the European Communities (1997), points 11-12.

98 Bermann et al. (2002), p. 950.

99 Fox (1998). See also Bermann et al. (2002), p. 950-953.

100 ICPAC (2000).

101 Official Journal of the European Communities (1997), point 2.

102 Official Journal of the European Communities (1997), point 32.

103 Official Journal of the European Communities (1997), points 48-51.

104 Official Journal of the European Communities (1997), points 43-44.

105 Official Journal of the European Communities (1997), points 52-53.

106 Official Journal of the European Communities (1997), point 58.

107 Official Journal of the European Communities (1997), points 59-60.

108 Suzman and Tucker (1997).

109 Dunne and Tucker (1997).

110 Pearlstein and Swardson (1997).

111 Tucker and Skapinker (1997a).

112 Tucker (1997).

113 Official Journal of the European Communities (1997), point 115.

114 Simon (1997).

115 Official Journal of the European Communities (1997), point 118.

116 Official Journal of the European Communities (1997), point 117.

117 Boeing Company (1997b).

118 Karpel (1998), p. 1050.

119 Tucker (1997).

120 Karpel (1998), p. 1048.

121 Tucker (1997).

122 Tucker and Skapinker (1997b).

123 Federal Trade Commission (1997b).

124 ICPAC (2000).

125 Andrews (1997).

126 Andrews (1997).

127 Pearlstein and Swardson (1997).

128 Fox (1998), Clark (1997a).

129 U.S. House of Representatives (1997).


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